Wealthy Koreans and Chinese from three locations join Japanese and Canadian buyers in the local market

BY DENNIS HOLLIER

Honolulu is one of the top 10 real estate markets in the country for international buyers.

Maybe you’re not surprised, but, according to Inman News, a prominent national source of real estate intelligence, 3.6 percent of all homes sold on Oahu between May 2011 and January 2012 went to buyers with a foreign tax bill address. That’s roughly twice the national average.

On the one hand, this factoid seems to confirm the obvious. Resort towns have always gotten the biggest slice of the international market, which is comprised mostly of affluent people seeking second homes. In that sense, high-end communities like Kahala, Wailea and Hualalai look like the quintessential market for these wealthy foreigners. But if you look closely at the numbers, the story becomes more complicated.

Bigger Picture

That’s because Hawaii differs from other U.S. markets in important ways. First, Hawaii real estate doesn’t offer the bargains international investors can find elsewhere. According to the Inman report, we don’t have the high vacancy or foreclosure rates that have depressed prices in Phoenix, Las Vegas and Florida. For example, in 2010, Cape Coral-Fort Myers, Fla., one of the top 10 markets for international buyers, had a vacancy rate of 37 percent, the highest in the country. The national figure is about 13 percent. In Hawaii, the vacancy rate is barely more than 8 percent.

That same divergence is reflected in the low number of foreclosure sales in the Islands. In Miami, during the fourth quarter of 2011, foreclosure sales accounted for 24 percent of all residential sales. In Phoenix, it was 39 percent. In Las Vegas, the country’s distressed property capital, an amazing 58.7 percent of all homes sold were foreclosures. In contrast, just 6.1 percent of Honolulu sales were foreclosures. The comparative health of Hawaii’s real estate market hasn’t yielded bargain-basement prices, so it’s not surprising that most foreign buyers have looked elsewhere.

Home Front

The biggest difference with the Hawaii market may simply be the mix of foreign buyers. Across the country, Canadians make up 23 percent of all international buyers, followed by the English and other Europeans. In Florida, which has six of the top 10 markets for foreign buyers, that trend is even more pronounced, with Canadians comprising more than 70 percent of the international market. In Hawaii, of course, Asian buyers predominate. According to the National Association of Realtors (NAR), Japan-based buyers still account for more than 58 percent of all international sales in Hawaii. Canadians are also an important market, but they make up just over 16 percent of foreign buyers. The next largest group is the fabled Chinese, comprising nearly 6 percent of all international sales.

This is a familiar landscape to Hawaii Realtors who specialize in foreign buyers. But there are subtle changes obscured in that data. Those changes aren’t lost on Patricia Choi of Choi International, Hawaii Business’s Top Realtor for three out of the past five years, largely due to international sales.

“Now, we have two or three new sets of buyers,” Choi says. “The first is the Koreans. They don’t have to have a visa anymore, and they can stay up to 90 days. Because of that, we have more people from Korea who are looking to buy vacation homes here. And they come in all ages, from young ones who’ve been very successful to older retirees.

“The second group is the Chinese – and actually you have three groups of those. You have the ones from mainland China, those from Taiwan and those from Hong Kong.”

It’s the group from mainland China that has some Realtors on the edge of their seats. After all, the country’s booming economy has produced hundreds of thousands of new millionaires, and, according to Juwai.com, a popular Chinese real estate portal, as many as 85 percent of them would like to immigrate to the U.S. or send their children to school here. That’s why smart Realtors like Choi see so much potential in the China market. Although Choi says that 60 percent to 70 percent of her business last year was from Japan, she’s focusing more and more attention on China.

“I’ll be leaving on a flight to China next week,” she says. “This is my third year in a row that I’m going to China.” She’s also going to Seoul this year instead of Tokyo.

Understanding foreign buyers isn’t just important for Honolulu Realtors; foreign buyers also play an important, albeit diminished, role in the market for high-end property on the Neighbor Islands. “We currently have about 300 members (owners),” says Rob Kildow, principal broker and director of sales for Hualalai Realty, which handles sales for the Hualalai Resort on Hawaii Island. “It looks like about 3.5 percent of our members are Japan-based. We also have members from Australia, Canada, Holland, Hong Kong, Korea and Singapore; but everybody is less than 1 percent except the Japan contingent.” Overall, though, he estimates nearly 20 percent of his sales are to foreign buyers. Given the amount of international money coming in, Kildow, like Choi, is keenly aware of what drives foreign buyers.

“Without getting too complicated,” he says, “a lot of it has to do with currency valuations. With the weak dollar, that’s made us more attractive to international buyers.” Probably the best example is the yuan, which is up 34 percent against the dollar over the past three years. That amounts to a 34 percent discount on U.S. real estate for Chinese buyers. That same scenario is playing out with the yen, the Korean won and the Canadian dollar.

“Lift is also an important part if it,” Kildow says. “Now, for example, there’s a once- or twice-a-week flight out of Hong Kong. There was an almost immediate jump in buyers with that. That works whenever you get more lift; you always get a pick-up in interest from those areas. People are creatures of convenience.”
Probably the most important issue for foreign buyers is the difficulty in obtaining financing. Banks simply don’t want to offer a typical mortgage to foreign nationals, which means these transactions often involve large quantities of cash. This is particularly troubling for Chinese buyers, who, because of tight currency regulations, often have difficulty getting money out of China.

“You can get money out of Hong Kong or Taiwan,” says Pat Choi, “But out of mainland China, you’re restricted to something like $50,000 per person per year.”
This is a serious impediment to buying real estate, she notes. “Some are able to get 50 percent loans. And they have big families. But most of the people doing this are pretty affluent; they’re people who have a lot of cash saved up.”

According to Choi, if young Realtors want to get into the international market, they have to understand all these issues. “They need to educate themselves,” she says. “They need to go to the NAR meetings and be active in the international section.” Maybe most important, they need to understand the needs of the international buyer. Choi recommends traveling to foreign countries and learning what potential buyers are like in their own environment.

She offers one more piece of wisdom: “This doesn’t happen overnight. It takes time.”

Top 10 U.S. Markets for Foreign Buyers

Foreign buyers as a percentage of all buyers in each market

Lakeland-Winter Haven, Fla.

9.2%

Cape Coral-Fort Myers, Fla.

8.5%

Orlando-Kissimmee-Sanford, Fla.

6.9%

North Point-Bradenton-Sarasota, Fla.

6.5%

Miami-Fort Lauderdale-Pompano Beach, Fla.

5.3%

Phoenix-Mesa-Glendale, Ariz.

4.2%

New York County, N.Y. (Manhattan)

3.7%

Honolulu

3.6%

Tampa-St. Petersburg-Clearwater, Fla.

2.9%

Las Vegas-Paradise, Nev.

2.8%

Photo: Thinkstock

Source: Inman News, reporting on all homes sold between May 2011 and January 2012.

Photo: Thinkstock

Launch a Business, Get a Green Card

One way Chinese real estate buyers are getting around visa rules and currency restrictions is by investing in U.S. businesses. According to the U.S. Citizenship and Immigration Service, over the past four years there’s been a 35 percent up-tick in EB-5 applications, a program that awards permanent resident status to foreigners who invest at least $500,000 in new U.S. business ventures that create a minimum of 10 jobs. Last year, 78 percent of all applicants for the program were Chinese nationals.

Buying overseas real estate is popular among affluent Chinese for a number of reasons. They may be buying property for a son or daughter studying overseas, as a tangible investment or the first step in a long term goal of emigrating to a new country. The following is a curated list of articles that provide insight into the growing trend of Chinese purchasing real estate for personal and investment reasons overseas.

WASHINGTON, Feb. 26 – Sales of newly built, single-family homes rose 9.6 percent to a seasonally adjusted annual rate of 468,000 units in January from an upwardly revised pace of 427,000 units in the previous month, according to data released today by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. This is the strongest sales pace since July of 2008.

“The fact that the cold weather that hit much of the country didn’t stop home buyers from going out and purchasing a piece of the American dream is a great sign,” said Kevin Kelly, chairman of the National Association of Home Builders (NAHB) and a home builder from Wilmington, Del. “However, the very low supply of new homes on the market and the continued concern of available buildable lots still have builders cautious about getting ahead of themselves.”

“We saw a weaker sales number in December 2013 than was previously trending, and I think much of January’s increase is due to sales catching up with pent up demand,” said NAHB Chief Economist David Crowe. “Still, there is little doubt that historically low interest rates, affordable home prices and a healing economy are bringing buyers back into the marketplace.”

Regionally, new-home sales were generally strong with three of the four regions posting large gains. The South, the West and the Northeast showed improvement, with respective increases of 10.4 percent, 11.0 percent and 73.7 percent. New-home sales in the Midwest fell by 17.2 percent.

The inventory of new homes for sale remained steady at 184,000 units in January, which is a 4.7-month supply at the current sales pace.

In the global real estate biz, China is the buzz. Every other week there is a story about how much money the Chinese are spending abroad on real estate. I’ve done them here a number of times myself. And it seems there are companies sprouting up designed to cater to China’s uber-rich; from Affinity China to Bomoda, there’s a savvy entrepreneur out there luring starry-eyed, super rich and a little impractical Chinese from buying a part of the Western dream.

Like Honiley Hall in Warwickshire in the U.K. It’s only about $15 million dollars. But that comes with 35 acres of land and a driveway that is bigger than most back yards at 1,312 feet long. This isn’t a house for the curious to go look at it and dream big. This is by appointment only. This is a house for the rich. And judging by an ad from the Peter D. Warwick’s namesake luxury property firm PDW, it’s mostly for the Chinese with lots and lots of crazy cash to burn.

These guys are just over-the-top now, aren’t they?

If they’re not buying up Sunseeker yachts just because they are the ones seen in the latest Bond movie, they’re out spending hundreds of thousands of dollars on American style weddings. Remember the Happy Meal toys and the dollar-a-day Chinese? Apparently, those people no longer exist in China. Everyone in China now is a millionaire and Americans and Europeans want to sell them the high life.

Starting this weekend, some 14,000 high-net worth Chinese will attend the Top Marques super luxury expo in Shanghai and guess who is going to be there? How about Miami real estate firms? How about realtors from the English countryside?

Miami real estate broker Jorge Martinez of Worldwide Properties, together with co-founder Roland Ortiz, and senior agent, Olimpia Zanardi, will be the first American real estate agents at the expo to showcase property alongside private jets and Ferraris. They’ll be touting their wares: $2 million South Beach penthouses at Venetian Way.

If you’re from Miami and thought your real estate values weren’t priced to match the state’s 7% unemployment rate, blame a rich foreigner. This isn’t to incite riots, of course. But the rich love Miami, and the Chinese love Florida, second only to California as their go-to state for second or third homes.

“For wealthy Chinese, a Miami penthouse is as much a lifestyle purchase as a $500,000 car, luxury purse or a case of $5,000-per-bottle wine” said Martinez. ”Our intention is to penetrate a new market. Chinese are investing in the U.S. more now than ever before and we want Worldwide Properties to be the agency that brings them to South Florida.”

Paradise Waters. If you have to ask where it is, it’s probably because you can’t afford it.

Top Marques is usually just for expensive toys. But this year, expensive housing is up for a look, too. It’s one more expression of how Chinese high-net-worth individuals have become so internationally sophisticated, and so wealthy, that they can pick up second homes in other countries like they would a designer purse or car. It is also a sign that Western real estate agents are waking up to the Chinese market, and starting to target these guys aggressively.

“Top Marques is a a very select audience,” said Andrew Taylor, CEO of Juwai.com, an internet portal helping Chinese buyers peruse international real estate listings. “At Top Marques, you know you are marketing to people who want the very best — and can afford it.”

Chinese buyers will spend $8.2 billion on American houses this year, according to the National Association of Realtors. That translates into $492 million in commission for American real estate agents thanks to China. Approximately 70% of Chinese buyers will pay cash. And while most of them are not buying multi-million dollar manors, the U.S. is the number one destination for Chinese property investors in 2013, according to Juwai.com data.

The Miami Association of Realtors says Florida is “a top state” for foreigners, with Miami claiming the most investment. This year, the Association is traveling to China for property shows and business meetings in Chengdu, Guangzhou, Shanghai, Beijing and Hong Kong.

The number of foreign-born Chinese Americans in the US doubled between 2000 and 2010, according to a UN report, and experts attribute the increase in large part to China’s growing middle class, who have left in droves to pursue education or business opportunities abroad.

Among approximately 3.79 million Chinese now living in the United States, 2.2 million were born in China, according to the report by the UN Department of Economic and Social Affairs (UN-DESA).

“There has been an astronomical increase in Chinese students coming to US, driven by economic growth in China, improved educational infrastructure and a continued uncertainty about China’s trajectory,” said Madeleine Sumption, a senior policy analyst and assistant director for research in the international program at the Migration Policy Institute in Washington. “Having an education outside China is viewed as being an insurance policy, and more and more parents are able to afford to take advantage of that.”

In 2000, 22,000 visas were issued to Chinese nationals in the US; in 2012, that number jumped to 189,000. Increased government investment in China’s education system has also contributed to a larger portion of the Chinese population being able to apply for study abroad, she said.

Zai Liang, a professor in the sociology department at the University of Albany with a focus on immigration and Chinese demography, said he believes that the UN figures are slightly misleading. A significant portion of the 2.2 million Chinese-born immigrants currently in the US are in the country on temporary visas for school or short-term business and will not stay, he said. Some of the students may have been counted twice as a result of exiting the country for holiday trips or other short vacations, he said.

Other factors possibly contributing to increased immigration from China include lenient US immigration policies that encourage high-skill workers from China to take jobs in the US, said Karthick Ramakrishnan, associate professor of political science at the University of California, Riverside. Ramakrishna directs the National Asian-American Survey, and is working on a book on immigration legislation.

The US is working to make its policies more competitive in drawing higher-educated immigrants equipped to work in high-skill industries, he said.

Although immigration from China has increased steadily over the last decade, various push and pull factors play a role in how it plays out in developing countries. Increased wealth provides the means for people to leave, but increased opportunity can also attract many to return home upon graduation, Sumption said.

Immigration reform in the US will likely continue to prioritize visas for educated, high-skill workers from China, but will make it more difficult for Chinese families to bring extended family members with them when they relocate. Adult siblings will no longer be eligible.

The UN-DESA report, which was released ahead of a summit on migration and development held by the General Assembly in early October, noted that 232 million people now live abroad worldwide. In 2000, that number was 175 million. The US remains the world’s most preferred destination for immigration: between 1990 and 2013, nearly 23 million immigrants arrived in the country.

“Even though many people think of immigration as being most important to the Latino community, it’s also incredibly important to the Asian community as the US’ fastest-growing racial group,” Ramakrishnan said.